Tags: Bass | Solution | Europe | EU

Kyle Bass: Only Solution for Europe – Dismantle EU

Wednesday, 14 Dec 2011 12:26 PM

Defaults in the eurozone are inevitable and recent coordinated actions taken by the world's central banks will only serve to cushion the fall when the European Monetary Union collapses but won't prevent it, says Kyle Bass, head of the Hayman Capital hedge fund.

Recently, the Federal Reserve and the world's leading central banks took coordinated steps to make dollar loans more available to European banks in order to ease a credit crunch in crisis-stricken Europe.

Shortly afterward, European Union nations agreed on the need for more coordinated fiscal integration.
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Nice attempts to end the crisis, but in the end, they won't stave off defaults in countries like Greece but will merely cushion the blow.

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(Getty Images photo)
"It's very difficult to arrange such a disparate group of people and get them all to cede their fiscal sovereignty to a central taxing authority and in the absence of that, I believe it won't work," Bass tells CNBC.

"They are going to have to restructure a lot of their debts and I think eventually the EMU is going to have to break up."

Bass adds he compares the coordinated action taken the Fed and major central banks to putting an airbag in place to break a fall.

The air bag can soften the blow but do nothing to stop the fall from happening. "They are serving their purpose from a perspective of stability liquidity in a default environment. I think they're putting in air bags for the fall that's about to happen," Bass told CNBC.

Furthermore, watch for bank deposits in periphery countries to start rushing to countries at less risk of a default, Bass adds.

European Central Bank (ECB) officials, meanwhile, remain steadfastly against directly buying sovereign bonds, which they say goes against their mandate of controlling inflation.

They also claim that such ECB action would give politicians undeserved wiggle room to avoid taking tough fiscal decisions to battle the debt crisis, such as tax hikes or public-sector layoffs.

Jens Weidmann, head of the German Bundesbank Central Bank and member of the ECB's governing council, has said that "one idea must finally be put aside, that of getting the needed money from the printing press."

Weidmann added that the ECB would become less independent if it stepped in and bailed out struggling European nations via bond purchases.

"This independence is lost when monetary policy is yoked to the wagon of fiscal policy — and then loses control over price stability," says Weidmann, according to the Associated Press.

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Defaults in the eurozone are inevitable and recent coordinated actions taken by the world's central banks will only serve to cushion the fall when the European Monetary Union collapses but won't prevent it, says Kyle Bass, head of the Hayman Capital hedge fund. Recently,...
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2011-26-14
Wednesday, 14 Dec 2011 12:26 PM
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